2016 (7) TMI 1484 - AT - Income Tax

Deduction u/s.80P(2)(a) eligibility - disallowance of interest income - Held that - Society which is carrying on the business of banking activity and providing credit facility to its members is eligible for deduction u/s.80P(2)(a)(i). In view of the decision of the Tribunal in assessee s own case as well as the decision of the Coordinate Bench of the Tribunal in the case of Shri Laxmi Narayan Nagari Sahakari Patsanstha Maryadit cited (2015 (8) TMI 1085 - ITAT PUNE) find no infirmity in the order of the CIT(A) holding that assessee is entitled to deduction u/s.80P(2)(a)(i) on the interest income. - decided in favour of assessee

Issues Involved:
1. Eligibility for deduction under Section 80P(2)(a)(i) of the Income Tax Act.
2. Applicability of the Supreme Court decision in Totgar’s Cooperative Sale Society Ltd. vs. ITO.
3. Proportionate allowance of administrative expenses.

Detailed Analysis:

1. Eligibility for Deduction under Section 80P(2)(a)(i)
The primary issue in this case is whether the interest income earned by the assessee, a cooperative society, from investments in banks other than cooperative banks, qualifies for deduction under Section 80P(2)(a)(i) of the Income Tax Act. The Assessing Officer (AO) disallowed the deduction, arguing that the interest income does not constitute operational income, which is only derived from providing credit facilities to its members. The AO relied on the Supreme Court's decision in Totgar’s Cooperative Sale Society Ltd. vs. ITO, which held that income from investments not related to the business of banking is taxable under "income from other sources."

The CIT(A) reversed the AO's decision, following the Pune Bench of the Tribunal's ruling in Niphad Nagari Patsanstha Ltd. vs. ITO, which held that income from money kept in banks is attributable to the business of providing credit facilities and thus falls within the scope of Section 80P(2)(a)(i).

2. Applicability of the Supreme Court Decision in Totgar’s Cooperative Sale Society Ltd. vs. ITO
The Revenue contended that the CIT(A) disregarded the Supreme Court's decision in Totgar’s Cooperative Sale Society Ltd., which should apply to this case. The Tribunal, however, noted that the facts in Totgar’s were different. In Totgar’s, the funds invested were surplus funds not immediately required for business purposes, whereas, in the present case, the funds were operational and not surplus. The Tribunal cited multiple decisions, including those from the Ahmedabad and Cochin Benches, which distinguished the facts of Totgar’s from cases involving cooperative societies engaged in providing credit facilities to members.

3. Proportionate Allowance of Administrative Expenses
The AO allowed a proportionate deduction of administrative expenses related to earning the interest income, amounting to ?3,63,565/-. The remaining interest income of ?44,52,781/- was added to the total income of the assessee. This approach was not contested by the CIT(A) or the Tribunal, focusing instead on the broader issue of whether the interest income itself qualified for deduction under Section 80P(2)(a)(i).

Conclusion:
The Tribunal upheld the CIT(A)'s decision, allowing the deduction under Section 80P(2)(a)(i) for the interest income earned from banks other than cooperative banks. The Tribunal emphasized that the funds were not surplus but operational, and the income was attributable to the business of providing credit facilities to members. The Tribunal followed the principle of consistency, referencing its own prior rulings in similar cases, and distinguished the facts from those in the Totgar’s Cooperative Sale Society Ltd. case. Consequently, the Revenue's appeal was dismissed.

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